How the Government Is Making It Harder for You to Retire

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Many Americans have saved shockingly little for their retirements, with one study showing that the median savings for households near retirement age is just $17,000. In the coming years, tens of millions of people without traditional pensions will have to get by with just their savings and relatively modest Social Security benefits, provided of course the program remains solvent.

That’s why pioneering efforts in California, Illinois, Maryland, Connecticut and several other states to address the dearth of retirement savings have been welcome by many experts. With earlier support from the Obama administration, these states have been laying the groundwork for Secure Choice Retirement Savings Plans that require businesses with five or more employees to either offer their own 401(k) savings accounts or automatically sign up workers for state-run accounts.

Workers can opt out of the program if they choose, but once in it they must pay roughly 3 percent of their income into tax-preferred retirement accounts managed by the state. While employers may or may not choose to contribute to their workers’ accounts, the employee’s participation is risk free – with the state guaranteeing a minimum rate of return.

But the ambitious plan has hit a brick wall in Congress, and this may end up denying millions of Americans a path to more substantial retirement savings.

The Senate last week voted 50 to 49 to approve a House-passed measure that would block implementation of the Secure Choice retirement plans and discourage other states from joining them. President Trump supports the move and previously signed a similar piece of legislation preventing cities from creating their own retirement investment programs.

Trump and the Republican-controlled Congress have been busy rolling back or repealing Obama-era regulations that they say adversely affect private businesses, especially Wall Street and the financial sector. Yet at the same time that House Speaker Paul Ryan (R-IL) and other GOP leaders are advocating a shift in responsibility for health care and environmental enforcement to the states, Congress and the new president have come down hard against allowing states to fill a huge gap in retirement savings for an aging population.

Senate Majority Leader Mitch McConnell (R-KY), who led the effort to block California and other states from moving forward with their savings plans, made it clear that the Republicans were concerned about Democratic state governments posing a challenge to private financial institutions that have long dominated the field of retirement savings and investments. A number of Wall Street firms and the U.S. Chamber of Commerce agreed.

“What the [state retirement plans] really add up to is more government at the expense of the private sector and American workers," McConnell said last Wednesday. "They would provide government-run retirement plans with a competitive advantage over private-sector workplace plans."

However, champions of Secure Choice initiatives, including AARP, argue that California and the other states are justified in entering a field of personal finance where the private sector and the federal government have clearly failed – creating what some have described as a “retirement security gap.”

Indeed, only one in three workers is using a 401(k) or similar retirement savings account, according to the U.S. Census Bureau, while relatively few Americans today are covered by traditional defined benefit retirement plans that typically offer more substantial long-term benefits.

Moreover, many Americans are uneasy about their financial futures and fear that their Social Security benefits and other savings will be inadequate to sustain them through their retirement years. Just two in five workers say they are confident they will have enough money for a comfortable retirement, according to the Employee Benefit Research Institute’s 2017 retirement confidence survey.

Last week, Democrats complained that McConnell and other Republicans were essentially doing the bidding of the financial industry, according to Bloomberg. “Some of my colleagues are listening to Wall Street lobbyists who want less competition and want to take away retirement savings options from hard-working Americans," declared Sen. Tammy Duckworth (D-IL).

Officials in California and several other states insist they will move ahead with their plans for offering tax-exempt IRAs, regardless of the congressional action, and that if necessary they will fight Congress and the Trump administration in court.

But supporters of the state efforts say the GOP opposition is shortsighted and bad government policy. Congress and the administration are undercutting programs that would substantially reduce the number of older Americans who eventually will have to make greater demands on social safety-net programs to make ends meet because of inadequate retirement savings.

Sen. Christopher S. Murphy (D-CT) told reporters that, “Nobody had a problem with this except for the big Wall Street companies who invented in their mind that they would be losing business to these state innovations.” He added, “This is a terrible, terrible thing we are doing.”

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.